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COMMON MORTGAGE TERMS AND ACRONYMS

Adjustable Rate Mortgage: An adjustable rate mortgage, known as an ARM, is a mortgage that has a fixed rate of interest for only a set period of time, typically one, three or five years. During the initial period the interest rate is lower, and after that period it will adjust based on an index. The rate thereafter will adjust at set intervals.

Annual Percentage Rate (APR): Refers to the cost of the loan as a percentage of the outstanding amount. This means that the total cost of loan is expressed in the form of a yearly rate on the remaining balance of the loan (outstanding balance).

Amortization: The amortization of the loan is a schedule on how the loan is intended to be repaid. For example, a typical amortization schedule for a 30- year loan will include the amount borrowed, interest rate paid and term. The result will be a month breakdown of how much interest you pay and how much is paid on the amount borrowed. An example of this would be a standard 30-year mortgage amortization wherein a borrower would make 360 equal consecutive monthly payments at the end of which the original loan would be paid in full.

Application or Administration Fee: Is the fee that a lender charges in order to process a borrower’s loan application. Such cost is borne by the borrower.

Appraisal: Is conducted by a licensed professional appraiser who will look at a property and give an estimated value based on physical inspection and comparable houses that have been sold in recent times.

Cash Out Refinance: A type of loan wherein an existing loan is refinanced and the borrower is allowed to receive cash in addition to the amount of the home loan. The cash is considered part of the amount financed and is part of the lien against the property securing the loan.

Closing Costs: These are the costs that the buyer must pay during the mortgage process. There are many closing costs involved ranging from attorney fees, title fees, recording fees and other costs associated with the mortgage closing.

Debt-to-income Ratio: Lenders look at a number of ratios and financial data to determine if the borrowers are able to repay the loan. One such ratio is the debt-to-income ratio. In this calculation, the lender compares the monthly payments, including the new mortgage, and compares it to monthly income. The income figure is divided into the expense figure, and the result is displayed as a percentage. The higher the percentage, the more riskier loan it is for the lender.

Equal Credit Opportunity Act: Federal Law aimed at protecting borrowers from being discriminated against based upon such things as ethnicity, sex, location of property and religious beliefs.

Escrow: At the closing of the mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. On a monthly basis, the lender will also collect additional money to be used to pay the taxes on the home. This escrow account is maintained by the lender who is responsible for sending the tax bills on a regular basis.

Fannie Mae (FNMA): Federal National Mortgage Association, also known as Fannie Mae, is a government-sponsored enterprise (GSE). Fannie Mae was established to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.

Federal Housing Administration (FHA): FHA is a governmental agency that operates, oversees and monitors a wide variety of home-loan programs and initiatives. FHA loans carry low-interest rates and minimum down payments. FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories.

Federal Home Loan Mortgage Corporation (FHLMC): Also known as Freddie Mac, is a public government-sponsored enterprise (GSE) that buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market

Fixed Rate Mortgage: Is a mortgage where the interest rate and the term of the loan is negotiated and set for the life of the loan. The terms of fixed rate mortgages can range from 10 years to up to 40 years.

Homeowner's Insurance: Prior to the mortgage closing date, the homeowners must secure property insurance on the new home. The policy must list the lender as loss payee in the event of a fire or other event. This must be in place prior to the loan going into effect.

Interest Rate: The rate at which interest is paid by a borrower for the use of money that they borrow from a lender. Specifically, the interest rate is a percentage of principal paid a certain number of times per period (usually quoted per year). A mortgage interest rate is the percentage of interest you pay a bank or financial company to have a home loan.

Late Charge: Whenever the borrower fails to make a payment on time, a late charge (or penalty) is imposed.

Loan Origination: The beginning of the loan process. Initial contact wherein the borrower and lender agree to work together to secure a loan. Usually an application is taken and an initial quote is given. The borrower is asked to supply documents supporting the information that is included in the application and upon which the quote is based.

Loan-to-value Ratio (LTV): This calculation is done by dividing the amount of the mortgage by the value of the home. Lenders will generally require the LTV ratio to be at least 80% in order to qualify for a mortgage.

No Cash Out Refinance: Also known as a "Rate and Term" refinance, this is a loan in which a lender simply refinances the existing first mortgage and no other bills are paid off and the borrower receives no cash as part of the transaction. These loans are usually done to improve the borrower's interest rate and to lower their mortgage payment.

Origination Fee: When applying for a mortgage loan, borrowers are often required to pay an origination fee to the lender. This fee may include an application fee, appraisal fee, fees for all the follow-up work and other costs associated with the loan.

PITI: PITI stands for the four segments of most mortgage payments: Principal, Interest, Taxes, and Insurance.

Point: A fee equal to 1% of a loan amount or principal. There are generally two types of points in play at a mortgage closing. Origination points are used as compensation for the lender. Discount points enable a borrower to prepay interest; each point purchased typically lowers the mortgage interest rate by .25%.

Private Mortgage Insurance: When the loan to value (LTV) is higher than 80% lenders will generally not be able to do the transaction. In these cases, the borrowers can get private mortgage insurance (PMI) which is a guarantee to the lender that until the borrower reaches a 80% LTV, they are covered from default. To get this protection, borrowers pay a monthly PMI premium.

Qualifying Ratios: These formulas are used by the lenders to estimate how much a potential buyer can borrow. In other words, qualifying ratios denote the affordability range of the buyer for the lender’s purposes.

Rate Lock: It is an option given to the buyer to select and set an interest rate during the loan application stage. A rate lock allows borrowers to set an interest rate that is well within their affordability range.

Settlement Costs: Prior to closing, the attorneys involved in the mortgage closing will meet to determine the final costs that are associated with the loan. These settlement costs are given to all parties so that they will be prepared to pay the closing costs that have been agreed upon.

TRIDTRID is an acronym for TILA (Truth in Lending Act) RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure. The Consumer Financial Protection Bureau issued a rule under TRID that integrated TILA and RESPA mortgage loan disclosures into two new forms: The Loan Estimate and the Closing Disclosure.

VA Loan As a benefit to U.S. Service members, VA Home Loans are provided by private lenders, such as banks and mortgage companies. The Department of Veteran’s Affairs (VA) guarantees a portion of the loan, enabling the lender to provide borrowers with more favorable terms. If you are a military service member, veteran or surviving spouse of a veteran, you may qualify for a VA loan. Advantages include no down payment requirement and an allowance for less-than-perfect credit.

A Guide for First-Time Homebuyers

Buying your first home is a big step. At Traditional Mortgage, LLC, we understand the perils involved in buying a home for the first time. We’re here to offer a comprehensive step-by- step guide to all first-time buyers on how to secure the best deal on the ideal home.Here’s what you need to know:

Pre-Qualification & Pre-Approval

The first step to buying a home involves a preliminary overview of your income, assets and credits. This pre-qualification process is intended to give you an idea as to where you stand financially. It provides you an insight on your affordability range.

The next step is pre-approval, where all your documents are carefully examined and a full report is prepared as to your income level, the purchase price and monthly payments well- suited for all your needs. Contact our licensed Loan Officers today to get started with the reviewing process.

Types of Loans Offered

There are two main categories of loans offered, the traditional mortgage programs and alternate loan initiatives. Alternately, the federal and state governments offer a wide range of programs that make it easier for first-time homebuyers to secure a low-interest and low monthly payment loan. Three of the most significant of them include:

  • Federal Housing Administration (FHA) Loan
  • Veterans Administration (VA) Loans
  • USDA (Rural Housing) Loan

Our professional loan processors and personnel offer complete information and assistance with respect to these special loans. To find out which loan you can secure and the minimum monthly payments within your affordability range, you can check out our mortgage calculator or give us a call.

The final important factor in home buying involves the closing date. This is the predetermined and mutually-agreed date at which the contract is signed and all closing fees are paid. These may include remaining down payment, interests, insurance and closing fees. On this day, you become the official owner of your new home.

If you’re buying a home for the first time, talk to our licensed Mortgage Loan Officers today, analyze all your loan and repayment options, and make the smartest choice when buying a new home.

Please call us at (484) 893-4100 or email us at TraditionalMortgageLoans.com for more information.

Mortgage Pre-Approval Checklist

Whether you have completed the pre-qualification process with Traditional Mortgage,LLC or not, you can apply for pre- approval at any time. The first step is to complete a full mortgage loan application, including the following information.

Your licensed mortgage loan officer can tell you about any additional requirements. Below is a partial list:

IDENTIFICATION
  • Photo ID- 2 Forms of Identification (Driver’s License and one additional)
RESIDENTIAL HISTORY
  • Your residential address for the past two years>
  • Landlord names and addresses for the last two years, if you rented during that time
EMPLOYMENT AND INCOME HISTORY
  • Paycheck stubs from the last 30 days showing your year-to- date earnings
  • W-2 or I-9 tax forms (issued by your employer) for the past two years
  • Last two years’ personal tax returns and schedules
PERSONAL ASSETS
  • Bank Account Statements from the two most recent months for all checking and savings accounts (all pages)
  • Other asset statements from the past two months for any CDs, IRAs, bonds or other securities (all pages)
  • Current real estate holdings, including property address, current market value, mortgage lender’s name and address, loan account number, balance and monthly payment
PERSONAL DEBT
  • A list of any new monthly debts not listed on your credit report (auto loans, mortgage loans, credit cards, student loans, etc.), including creditor name, address, account number, minimum monthly payment amount and outstanding balance on each account

Additional documents may be required prior to your mortgage closing. Your licensed mortgage loan officer will let you know if any documents will be needed when you close on your new home. They will work closely with you at each step of the mortgage process.

WHAT TO AVOID BETWEEN PRE-APPROVAL AND CLOSING ON YOUR NEW HOME

Once you have been pre-approved for a home loan, you can start shopping for your dream home. However, much can change between pre-approval and applying for the right mortgage. To stay within the parameters of your lender's pre-approval confirmation, there are some activities to avoid in order to keep your credit score stable and your financial status healthy.

Do Not Make Any Major Purchases - While you're waiting for your final mortgage to be approved, any major purchase (either in cash or on credit) can adversely effect your credit rating, cash reserves, and debt-to- income ratio. This can seriously jeopardize your pending mortgage.

Do Not Apply for Any New Lines of Credit - Every time you apply for credit, your credit score takes a hit. If your credit score changes while your mortgage is waiting to be approved, it could seriously impact the terms of your loan or even result in your home loan being denied.

Do Not Change Bank Accounts -When lenders determine your mortgage eligibility, they look into your assets. Typically, they will review your accounts to see the source of your cash funding and how long it has been deposited in your bank. If you change banks, or even change your account profiles, the lender may refuse your mortgage application and you will have to reapply after your new accounts have been active for at least several months.

Do Not Make Any Large Deposits or Withdrawals - Again, your lender will want to confirm your banking information and any large, or sudden, cash withdrawals or deposits will derail your final mortgage approval. If you receive any large cash gifts while you are waiting for your mortgage to be approved, report them to your bank or lender and provide a letter from your benefactor proving the money is a gift and not a loan.

Do Not Pay Off Any Outstanding Debts - It may seem counter intuitive, but paying off any large outstanding debts can change a pre-approved home loan to a denial. Calculating credit scores is extremely complex, and any change in your credit profile (good or bad, up or down) can cause a lender to reevaluate your pending approval and force you to begin the process all over again

Change in employment - If there is any change in employer, employment status, salary, bonus, hours, etc. you need to notify your lender of these changes immediately.

Additional documents may be required prior to your mortgage closing. Your licensed mortgage loan officer will let you know if any documents will be needed when you close on your new home. They will work closely with you at each step of the mortgage process.